Abstract
The relevance of trust in the central bank is determined by the rapid growth of the gap between the expectations of a regulator and market participants regardless of the reforms carried out by the NBU. Therefore, the need to use the “non-traditional” monetary policy instruments has enhanced the role of verbal interventions in the context of inflation targeting. The aim of the article is to ground that trust causes adequate rational behavior of the market participants in response to the central bank’s communication policy. The type of this research is an explanatory research method. As determined, trust is the necessary condition for the effectiveness of the central bank’s communication strategy and it favors the achievement of proclaimed objectives. It is established that although since 2014 the NBU activated verbal interventions as an additional instrument to anchor expectations, the increase of transparency does not prompt the trust because of the lack of confidence of citizens in the NBU and high level of stress in the domestic financial sector. It is emphasized that the pursuit of inflation targeting requires expanded communication to gather the expectations of economic agents. The NBU, in its communication policy concerning the economic climate, underlines devaluation expectations, the exchange rate and explanations on the discount rate. However, the deviation of expected enterprises’ exchange rate from the actual exchange rate, growing velocity of money circulation against the declining share of funds involved in the banking system, low monetization level and low penetration of financial services evidence the distrust in monetary policy.
Highlights
During the latest four years, the National Bank of Ukraine (NBU) has been implementing reforms according to the Comprehensive Program of Ukraine Financial Sector Development until 2020
As at the beginning of 2016, the NBU switched to the use of the inflation targeting regime, the central bank of Ukraine needs to communicate in an appropriate manner, that it targets a certain inflation rate
Inflationary and exchange rate expectations can indirectly impact the formation of the actual prices if we exclude the administratively-regulated prices
Summary
During the latest four years, the National Bank of Ukraine (NBU) has been implementing reforms according to the Comprehensive Program of Ukraine Financial Sector Development until 2020. One of the major achievements of the reforms are the setting of inflation targeting, the mopping up of the banking sector (90 banks were liquidated), the limitation of lending to related parties, the establishment of the National Bank Credit Register, the transition to international standards for banks based on Basel III, the introduction of risk-oriented banking supervision (SREP), the raising of the standards of disclosure by banks, etc. In order to achieve a positive effect from the reforms, the NBU needs to prove its ability to achieve the stated goals. As at the beginning of 2016, the NBU switched to the use of the inflation targeting regime, the central bank of Ukraine needs to communicate in an appropriate manner, that it targets a certain inflation rate (projected inflation is at 5% ± 1 in 2019)
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